Condor Options

The Vicissitudes of Hedging Tail Risks

People are excited about tail risk. On the institutional side, banks and asset managers are packaging up complex, multi-asset hedging products and selling them to pension funds, endowments, and other natural longs. On the retail side, Barclays and others are getting great traction with products like VXX, VXZ, VXX options and now XXV (see Bill’s helpful overview of this space). I’m hoping to join the fray, too, with a managed account program and subscription product set to launch in the next…

Hedging Tail Risk with the VIX

Felix Salmon is doubtful about whether it is possible to hedge tail risk, and I wholeheartedly agree with the data he cites showing that, of eight major asset classes, only volatility and managed futures offer genuine non-correlation to market returns. In fact, I’ll go a step further: I’m not that enthusiastic about the benefits of managed futures, at least in their current form. As a registered commodity trading advisor, I’ve seen the sorts of strategies that most of my peers are…

Using VIX Hedges to Reduce Strike Dependence

Equity investors who want a broad-based hedge have essentially three vehicles from which to choose: equity index options (SPY, SPX, ES, etc.), VIX futures (or their ETF permutations), and VIX options. In this piece, Larry McMillan makes the case for using VIX options instead of SPX derivatives, and this is his best argument: In my opinion, the purchase of VIX calls is a much better, more dynamic way, to approach protection. That is because VIX will explode whenever the market declines sharply,…

Q2 Performance Review

The iron condor newsletter returned 6.44% in the second quarter this year, easily beating both the Volatility Arbitrage benchmark (-3.97%) and the S&P 500 (-3.65%), with a lower maximum draw-down for the year and superior 1-year rolling returns. The newsletter portfolio value made a new all-time high. Although our strategy is almost entirely rule-based, every strategy ultimately requires human input, even if it is at a high level of decision-making. In the case of mechanical or rule-based strategies, perhaps the most important…